updated 01:50 pm EDT, Thu October 23, 2008

'True' Apple growth missed

Looking past GAAP accounting measures, Apple's adjusted net income grew 124.6 percent in the past quarter, says Seeking Alpha. The publication has analyzed numbers from Apple's Q4 fiscal report this week, and comments that Wall Street analysts failed to highlight the strong growth numbers produced when adjusting for GAAP (Generally Accepted Accounting Principles) subscription method procedures that are delaying much iPhone revenue by amortizing the full value of the phone over a two-year period. Apple is reporting 43 percent of its revenue and is earning 63 percent of its net income from the iPhone.

GAAP accounting procedures have forced Apple to spread the net income from the iPhone over eight quarters, reflecting a two-year subscription model, effectively hiding nearly 90 percent of the iPhone's net income. The accounting standard leaves Apple trading on a P/E ratio (price-to-earnings ratio) that fails to reflect huge earnings numbers that could make Apple's stock a much more attractive buy for investors.

The difference in real versus GAAP rates is said to have limited visible growth for Apple to 23 percent, and produced smaller profit numbers contributing to numerous bearish ratings from analysts, which in turn have depressed Apple's stock price.

Apple reported according to GAAP. But if you look at the non-GAAP numbers, since they are the raw data and are more accurate in terms of the amount of stuff Apple actually sold, it shows a huge jump. The fact that Apple recognizes it over time does not change the fact that the iPhone sales numbers were huge. Which is what the non-GAAP numbers tell you.

Nice troll "Guest". Apple is reporting income both ways. So where is the distortion?

Apple has clearly explained that they've adjusted their reporting because of different practices required for products that have payments spread over time (i.e. the subsidy payments AT&T makes to Apple every month for iPhones activated on AT&T's network). If they failed to follow this accounting practice they'd have to charge iPhone users for every software upgrade, which is what is happening for iPod touch customers.

the income will eventually be counted... it's just delayed. I think Wall Street gets that. Now that the phone is apparently subsidized, I'm guessing that Apple gets monthly payments from AT&T, and those payments may depend on whether a customer stays with AT&T. In other words, the income may not be guaranteed, and if so, it's proper not to include it. It will eventually be a factor, however, and will grow in size over time.

With the delayed reporting, it means that even if Apple stumbles on sales, the residual income still keeps coming in. The more phones sold, the more pad they have. It will stabilize the stocks instead of jumping up and down each time a new phone is introduced and sales taper off weeks before and jump weeks after.